About 72,000 people will have their federal loans fully canceled after Education Secretary Miguel Cardona on Thursday scrapped a plan to give partial debt relief to students defrauded by their colleges, ending a controversial policy instituted by his predecessor Betsy DeVos.
“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” Cardona said in a statement. “A close review of these claims and the associated evidence showed these borrowers have been harmed and we will grant them a fresh start from their debt.”
Students are entitled to a discharge of their debt when their college uses illegal and deceptive tactics to persuade them to borrow, but the Trump administration tried to limit that relief.
DeVos created a methodology for processing claims that compared median earnings of graduates who have made debt relief claims with those of graduates from comparable programs. The bigger the difference, the more relief an applicant will receive.
Critics of the policy said graduate earnings were a faulty measure as many applicants never completed their degree and the formula created impossible standards for many to get full relief. The policy was a stark contrast from the Obama administration’s practice of granting full cancellation when it determined a college committed fraud.
Under Cardona’s leadership, the department will revive the Obama-era policy. Borrowers whose claims have been approved, including those who previously received partial loan relief, will have a path to a full loan discharge. The department will reimburse any amounts paid on the loans, request credit bureaus to remove negative reporting tied to the debt and reinstate federal aid eligibility, officials said.
Eligible borrowers will be notified in the coming weeks, according to the department. All of the approved claimants subject to the new policy attended for-profit colleges.
The new policy only applies to claims that have been approved to date, not any that are still under review or those have been rejected. A senior department official told reporters Thursday the agency is reviewing the best approach for those claims going forward.
The Biden administration said it will also pursue an overhaul of the prior administration’s rewrite of the borrower defense rules, a process that will require new rulemaking.
Thursday’s announcement arrives as the Education Department remains embroiled in lawsuits over DeVos’s treatment of debt relief claims.
Consumer groups criticized the Biden administration in February for backing the former secretary’s fight to avoid testifying about her role in slow-walking and denying scores of claims. The Justice Department argued in a joint filing with DeVos’s personal attorney that her deposition would be “extraordinary, unnecessary and unsupported.”
Although DeVos is no longer a party to the class-action lawsuit, attorneys for the borrowers say new evidence reveals she signed off on a plan to intentionally delay and reject claims.
A trove of internal memos the Education Department recently turned over show top officials directing staff to stop processing applications and issue mass denials regardless of the nature of the claim. When borrowers sued in 2019, the Trump administration denied having any such policies.
Documents show the department instituted quotas that effectively encouraged denials, say attorneys. People charged with processing the claims were required to review a minimum of five cases an hour. And despite denial notices saying applicants could submit their claims for reconsideration, officials admitted under oath that there was no process in place for that, according to an amended complaint to be filed Thursday.
“The previous administration turned borrower defense into a total sham that was rigged to deny claims without any true consideration,” said Toby Merrill, director of the Project on Predatory Student Lending, a group representing the borrowers. “The Biden-Harris administration must now address these failings or else perpetuate a system that is stacked against the very students they are supposed to protect.”
The new evidence came to light after the federal judge overseeing the case rejected a proposed settlement in October and requested more details about the federal agency’s procedures for reviewing claims. U.S. District Judge William Alsup in the Northern District of California criticized DeVos for denying 94 percent of the debt relief claims the department had processed since reaching the agreement in April, accusing her of undermining the deal.
The Education Department had agreed to clear out nearly 170,000 unresolved claims within a year and a half under the proposed settlement. The agreement was one of the Trump administration’s first significant moves toward a resolution.
After taking office, DeVos refused to approve or deny applications for debt relief, saying her administration needed time to review the process created under the Obama administration. Tens of thousands of claims piled up before the secretary decided to grant partial debt relief, which led to a lawsuit from former Corinthian Colleges students. DeVos said the case ground the system to a halt. But borrowers argued that it had no bearing on their applications and took legal action against the secretary.